Beneficial ownership transparency in Norway - real estate as a safe haven for money laundering?
TI Norway and TI Slovakia carried out a joint project on beneficial ownership transparency 2020-2022. The project was funded by the Active Citizens Fund.
In this blog we summarise the state of the art concerning beneficial ownership transparency in Norway, illustrated by studies of the real estate market and current reform processes.
Inspired by the study Faulty Towers, carried out by Transparency International UK, TI Norway documented in 2021 that more than 10 percent of properties in the most attractive parts of Oslo were owned from tax havens.
Following scientific papers and research by investigative journalists from several media, based on extended data sets, have later confirmed that the Norwegian real estate market plays an important role in transnational money flows and investments.
The TI study of Oslo
The TI Norway study started with a simple question: "Who owns Oslo?". The same question has been raised by residents around the world: "Who owns our city?" The background to these questions is that real estate is valuable as much more than a place to live and as a place to run businesses. Real estate in metropolitan areas around the world is also being used as means of money laundering.
The leaks Pandora papers as well as a whole series of studies and research have confirmed that the proceeds from criminal acts are placed and laundered using real estate, either it be earned through corruption or other criminal activity. Illegal capital from other parts of the world thus ends up in the rich countries and in the commercially attractive real estate markets. Real estate money laundering has been documented in cities such as London, Berlin, New York, Toronto, Vancouver, Melbourne, Paris.
Is there any reason to believe that money laundering does not take place through the real estate market in Norway and Oslo? Our hypothesis was no, for several reasons: In Norway, there are stable market conditions, and the country has experienced long term economic growth. The legal and political framework for businesses and economic life are well regulated, combined with a low tax level on real estate and surrounded by a high degree of political stability in the country.
These preconditions have made both domestic and foreign investments in Norwegian real estate profitable. As an indicator of that, house prices in central parts of Norway have increased almost ten times from 1992 to 2019. In the country as whole, house prices were six times higher than in 1992.
The study is based on publicly accessible sources, mainly a sample from the national registry of property information. We extracted a list of all properties in the most attractive parts of Oslo city centre, with the names of the registered owner of each of them. We sorted the ownerships into categories, according to recognised indicators of money laundering risks and crosschecked the registered owners with other publicly available sources, such as media coverage and the national registry of companies. The main findings were the following:
Number of ownerships in tax havens (according to the Tax Justice Networks Financial Secrecy Index). We found that 46 percent of the ownerships that belong to companies, are registered in tax havens, which means that the real ownership is largely hidden.
Number of ownerships in high-risk countries for corruption (according to TIs Corruption Perceptions Index). There is a certain element of both physical (10 percent) and legal persons (45 percent) who are registered in countries with a moderate to high level of corruption.
Hidden ownership, nominees. For 42 percent of the ownerships belonging to companies, the ownership structure is complicated (eg trust, several owners internationally, several jurisdictions), so that there is doubt as to who the real owners are. It is also difficult for private individuals (natural persons as owners) to find information about the owner via open sources.
Criminal risk profiles among owners. There is a certain element of individuals with a risk profile (eight percent of the identified natural persons), ie individuals who have been prosecuted in criminal cases or sued in tax cases in Norway or abroad. A small part of the ownership that belongs to companies (one percent) has been linked to various types of illegal activities. In fact, we could not identify any oligarchs or PEPs. Neither did we find positive evidence of Slovakian residence in the data sets, which do not exclude the possibility of their existence.
The main conclusion from the study is that the findings are evidence of a substantial money laundering risk in the real estate market in Oslo. One of the main reasons is the lack of information about beneficial owners. The current sanctions against Russian actors, after the Russian invasion of Ukraine, have further documented the urgent need for better information sources and methods to identify beneficial ownerships.
Recent research – foreign and hidden ownerhip
The Norwegian press has followed up the issue with research from different angles. The daily business paper Dagens næringsliv (text in Norwegian) has in 2022 documented that almost 10 000 properties in Norway are registered within owners in tax havens. Those properties cover all kinds of real estate, such as business locations, housing blocks, luxury apartments, large factories, hydro power plants and harbours. The paper has identified such ownerships in all parts of the country, not only in the metropolitan areas. Those properties were all together mortgaged to 400 bill NOK, which equal 40 bill Euros.
The same year a research paper published by Alstadsæter and Økland from The Norwegian University of Life Science, showed that an increasing proportion of alle property in Norway has foreign ownership. In total two percent of Norwegian real estate assets were foreign owned in 2017. By Norwegian corporations, the share amounted to 10 percent.
Ownership in tax havens has been rapidly growing. 31 percent of the foreign owned real estate was registered in tax havens in 2011, and the share increased to 38 percent in 2017. Luxembourg ownership accounts for 3/4 of this increase.
Reform discussions
The Norwegian parliament has decided to provide an openly accessible register on beneficial ownership, which is still under way to be implemented.
The recent research on foreign ownership in real estate has intensified the debate on needed reforms in BO transparency, more in line with present registries in eg Slovakia, Denmark and other European countries.
Tax authorities, MPs and the government now argue for more effective means in the work for BO transparency, as they realise that the current lack of information both may promote tax avoidance, transnational money laundering and corruption and even be a national security problem, as the authorities do not know to which extend hostile actors control properties in Norway.
Extended partnership efforts across countries authorities, as well as civil society cooperation across borders, like the cooperation between TI Norway and TI Slovakia, is still needed to combat the related problems of lack of BO transparency.